'Modelitus' Is the Primary Cause of Toyota's Troubles

Automaker Has 36 Models -- and a Misplaced Focus on Growth

The Toyota Production System is world famous for its focus on "continuous improvements." With all those improvements continuously taking place, why has Toyota suddenly found itself in deep trouble?

You might have your own theory, but here is mine: "Modelitus."

There isn't just one Toyota production line. There are dozens. Currently the company produces 18 different Toyota models. Starting prices range from $12,605 for the Yaris to $65,970 for the Land Cruiser. In addition, Toyota makes three Scion models sold in showrooms adjacent to Toyota showrooms as well as 15 different Lexus models.

In total, Toyota Motor Corporation produces 36 different models, up from 18 a decade ago.

Thirty-six models? It's one thing for a company's engineering staff to continuously improve one model. But 36? And what about all the new Toyota models currently on the drafting boards?

Then there's the often-misunderstood notion of what a model is. Take the Toyota Camry, the company's most popular model.

What's a Camry? The buyer has a choice of two different engines (2.5 or 3.5 liters), two different transmissions (manual or automatic) and three different trim packages (LE, SE and XLE). In all, there are 10 different types of Camrys rolling down Toyota production lines, not counting interior or exterior colors, of course.

Why so many models?

A dealer-driven business
Like many businesses, the automobile business is dealer-driven. Whatever the dealer wants, the dealer ultimately gets. Dealers know best, goes the thinking at headquarters. They interact with customers and prospects every day. And what do dealers want?

Dealers want to have a vehicle that's suitable for every prospect that walks in the door. From cheap two-door sedans to expensive four-door sedans, SUVs and sports cars. Plus an array of trucks, of course.

Hence, the full line.

Modelitus makes sense from the dealer's point of view. The more models on the showroom floor, the greater the sales and the greater the profits. True. Which is why Ford markets 14 different models of cars and trucks. And Chevrolet markets 15 different models.

But modelitus doesn't make sense from a marketing point of view. How do you get a prospect to walk in the dealer's front door? You need to stand for something in the prospect's mind.

And that's extremely difficult when you market a full line of vehicles under one brand name. That's why most automobile brands are saddled with nonsensical marketing slogans.

Chevrolet: "An American revolution."

Toyota: "Moving forward."

Ford: "Drive one."

Honda: "The power of dreams."

Nissan: "Shift__the way you move."

Hyundai: "Think about it."

Acura: "Advance."

Infiniti: "Inspired performance."

Kia: "The power to surprise."

Dealers have always been difficult. Years ago, when I was working on the introduction of the Peugeot 404 in the U.S. market, the dealers wanted us to increase their margins and advertise a high price for the car.

Why? So they could offer big discounts to prospects.

But from a marketing point of view, it made more sense to advertise a relatively low price for the car so we could get more prospects into the dealerships in the first place.

Two schools of thought
In automotive marketing and in marketing in general, there are two diametrically opposed schools of thought.

One school believes you win by offering prospects every possible option. As a result, the vast majority of companies today are focused on "more." More models, more variations, more flavors, more sizes.

Left-brain management thinks, "Let's not make the same mistake Henry Any-Color-as-Long-as-It-Is-Black Ford made. Let's not give the prospect any reason not to buy the brand."

Most of this product proliferation is harmless, but not when it involves highly engineered products like automobiles.

The second school of thought, one definitely in the minority, believes you win by narrowing your focus to build a powerful brand that can ultimately dominate its category.

In his book "Inside Steve's Brain", Leander Kahney tells what happened when Steve Jobs returned to Apple in 1997. At the time, he found the company's computer offerings totally confusing. There were four major product lines: Quadras, Power Macs, Performas and PowerBooks, each with a dozen or so different models.

"What I found when I got here was a zillion and one products," Jobs would later say. "Why would I recommend a 3400 over a 4400? When should somebody jump up to a 6500, but not a 7300? If I couldn't figure this out ... how could our customers figure this out?"

So he drew a box with four quadrants. Across the top he wrote "Consumer" and "Professional." Down the side, he wrote "Portable" and "Desktop."

That was it. Four machines to cover everybody.

When you have a simple product line, your clarity of vision rubs off on potential customers. They tend to trust you to know what is best for them.

Apparently Apple's simplification is working for them. The company's share of the computer market has almost doubled, and even today, Apple still has only nine computer models in its product line.

One model vs. many
In 1908, Henry Ford made three car models, the R, the S and the T. The following year, much to the consternation of his salesmen, he announced that in the future he was going to build only one model, the T.

Salesmen, according to Ford, thought that "even greater sales might be had if only we had more models."

One hundred years later, sales people still think the same way: More models equal more sales. That's true in spite of the success of products such as the Ford Model T and the Volkswagen Beetle.

For 18 years in a row, from 1909 to the year 1926, the Ford Model T was the No. 1 selling car in America with an average market share of 43.4% (the following year, Ford discontinued the Model T in order to convert its production lines to its new Model A).

By way of comparison, Toyota's share of the U.S. market last year, all three brands and 36 models combined, was 19.5% in cars and 13.9% in trucks.

Well, you might be thinking, there were a lot fewer car brands in Henry Ford's day. That's not true. There were hundreds of automobile brands in the early 1900s, which is consistent with the way any new category develops.

Early on, for example, there were hundreds of brands of personal computers. Now just a handful are left.

Losing focus at Toyota
Toyota is the leading car brand in America. It's one of the first brands consumers think about when considering a new car. It's also perceived as the highest-quality entry-level brand.

Last year, Toyota sold more cars in America than any other brand by a big margin. It led the No. 2 brand, Honda, by 47% (that will surely change this year).

Toyota: 938,468

Honda: 638,465

Chevrolet: 616,803

Ford: 486,599

Nissan: 458,653

Hyundai: 325,667

The biggest mistake Toyota made, in my opinion, was getting into the light-truck business. It's difficult for a brand to be considered the best "car" brand as well as the best "truck" brand.

And sure enough, Toyota's overwhelming success in cars didn't translate into trucks. Here are U.S. sales of light trucks last year:

Ford: 954,054

Chevrolet: 721,809

Toyota: 557,743

Honda: 406,596

Dodge: 360,568

GMC: 253,053

Consider Chevrolet and Ford, the two dominant American brands. In the past, Chevrolet was usually considered the best American "car" brand and Ford was usually considered the best American "truck" brand.

Sure enough, last year Chevrolet led Ford in cars by 27%. And Ford led Chevrolet in trucks by 32%.

It's a teeter-totter. When one side (trucks) goes up, the other side (cars) goes down. And vice versa. You can't be all things to everybody.

That's one reason why Toyota should have focused on "cars." But there's another reason, too.

A line of retreat
Marketing strategy is like military strategy. When attacking a strong enemy, it's always wise to give them a "line of retreat." You don't necessarily want to box them in a corner where they will fight to the last man. That way, both sides are likely to take enormous casualties.

What made America's island-hopping strategy of World War II in the Pacific so deadly was the lack of a line of retreat for the enemy. At Iwo Jima, for example, there were 26,000 American casualties as compared with 22,000 Japanese casualties, virtually the entire force defending the island.

By staying out of the truck business, Toyota could have given the big American brands a profitable line of retreat.

Instead, Toyota launched a full line of both car and truck models, forcing its American competitors to fight back with huge discounts. Both sides suffered, although the American brands suffered the most.

Blowing up the corporate balloon
Most companies are focused on expansion. When asked what legacy she hopes to leave at Xerox, new CEO Ursula Burns said recently: "It's all about growth. It's all about getting bigger."

Blowing up a corporation, as Toyota and many other companies have done, is like blowing up a balloon. The end can come at any time. Keep blowing and sooner or later the balloon will burst. Not because of an overall failure, but because of some minute imperfection in the balloon itself.

Financial services in the case of General Electric. Credit default swaps in the case of A.I.G. Unintended acceleration in the case of Toyota.

ABOUT THE AUTHOR

Al Ries is chairman of Ries & Ries, an Atlanta-based marketing strategy firm he runs with his daughter and partner Laura.